Kahn v. Perry Zolezzi, Inc.

Decision Date27 December 1950
Docket NumberNo. 7346,7346
Citation226 P.2d 118,119 Utah 256
PartiesKAHN, v. PERRY ZOLEZZI, Inc. et al.
CourtUtah Supreme Court

Rich & Elton, Salt Lake City, for appellants.

White, Wright & Arnovitz, Salt Lake City, for respondent.

DUNFORD, District Judge.

The plaintiff began this action by filing a complaint, accompanied by affidavits of attachment and garnishment, and having processes issued upon both special proceedings.

The complaint at that time alleged, in substance, the corporate existence of the defendant Perry Zolezzi, Inc., the residence of the defendant Perry, the making of a promissory note dated June 1, 1946 by the latter to the plaintiff and that on or about the 1st day of July, 1946, the defendant corporation received from the defendant Perry property in the amount of the note upon the corporation's promise to apply such property to payment of the note. That the corporation on September 21, 1946 did pay $3,588.83 upon the note, leaving a balance of $15,000, plus interest and attorneys fees due.

Nothing was obtained under the garnishment but personal property was attached, the return of the sheriff being filed on April 30, 1947. On May 2, 1947, the parties entered into a stipulation whereby $16,500 was paid to the Clerk of the Court by the corporate defendant in order to obtain release of the attached property, and the property was accordingly released from the attachment.

Summons was not served upon the defendant Perry, and he did not appear in the action except as a witness for the plaintiff.

The defendant corporation's answer to this complaint was filed June 2, 1947 and in it the defendant denied its assumption of the obligation of the note or that it had received property under an express undertaking to pay the obligation and claimed payment of the $3,588.83 was made by the defendant Perry upon the note from funds of the corporate defendant, but alleges that such payment was without authority of the corporation, and asserted that the claim of liability of the corporate defendant was barred by the Statute of Frauds, Section 33-5-4, U.C.A.1943.

After all of the foregoing pleadings and processes had been filed, and on November 19, 1947, by leave of Court, the plaintiff amended his complaint by adding a second cause of action in which he set up a situation coming under the bulk sales law, alleged its violation by the corporate defendant and sought to hold the property conveyed by defendant Perry to the corporate defendant, to the satisfaction of the note. Most of the files, briefs and arguments of counsel are concerned with this amendment. After careful consideration of all of such matters, this court, as will hereinafter more fully appear, has concluded that if the records of this case support the judgment upon the original complaint and the answer thereto, all questions arising by virtue of the amendment and pleadings thereto become moot.

It is thus necessary that the Court determine first the question of the applicability of the Statute of Frauds pleaded, and if it is found that the cause is not barred by virtue of that statute, then to determine whether the evidence introduced and admitted is sufficient to support the findings and conclusions of the trial court that the corporate defendant did receive property from the defendant Perry, sufficient to pay plaintiff's note, upon its express undertaking to pay the said note. If it is so determined, the judgment must be affirmed.

Section 33-5-4, U.C.A.1943, so far as material to this case, provides:

'In the following cases every agreement shall be void unless such agreement, or some note or memorandum thereof, is in writing subscribed by the party to be charged therewith: * * *

'(2) Every promise to answer for the debt, default or miscarriage of another.'

The complaint does not allege that the agreement was in writing and defendant's demurrer, which was overruled by the trial court, attacks the pleading on that ground. Nevertheless, the plaintiff strenuously contends that sufficient memorandum in writing appears in the evidence to answer the requirement of the statute.

Section 33-5-6, however, provides exceptions to the requirement that a promise to answer for the obligation of another must be in writing, in which cases such promise 'is deemed an original obligation of the promisor and need not be in writing', and sub-section (1) provides: '(1) Where the promise is made by one who has received property of another upon an undertaking to apply it pursuant to such promise, * * *.'

Plaintiff's original complaint clearly pleaded within the exception of the above statute. If the evidence establishes that the corporate defendant did receive such property upon such an undertaking, the Statute of Frauds does not apply.

Prior to negotiations between the defendant Perry and Stephen Zolezzi, Mr. Perry and one Nielson operated a partnership which appears to have been engaged generally in poultry sales, purchases and processing, which firm had accumulated a considerable amount of property, real and personal, and had accumulated also a considerable amount of debt. On July 17, 1946, Mr. Perry and Mr. Zolezzi entered into a pre-incorporation agreement by which Perry was to obtain from Nielson conveyance of all real and personal property used in the partnership business, at which time it was provided a corporation was to be formed known as Perry-Zolezzi, Inc., which should have an authorized capitalization of $200,000 represented by that many shares of capital stock at $1 per share, 100,000 shares of this amount was to be issued.

The new corporation was to lend Mr. Perry $50,000 upon his unsecured note, the money to be deposited in the First National Bank of Salt Lake City to be disbursed upon written directions of Perry after title insurance had been obtained upon the buildings, land and equipment, showing title to such property vested in the new corporation. The agreement then sets forth the Nielson & Perry liabilities amounting to $164,000, and provides the source of funds to discharge these liabilities. They are:

$80,000 by loan secured by mortgage upon the property.

50,000 cash by Mr. Zolezzi's subscription to capital stock.

10,000 to be contributed directly by Perry.

18,000 turkey drafts owned by Perry.

10,000 accounts receivable and turkey inventory carried by Nielson & Perry.

$168,000 Total (or $4,000 more than sufficient to discharge the Nielson & Perry obligations.)

Perry then agreed that he would contribute in exchange for cancellation of $40,000 of the $50,000 note given to the corporation and the issuance to him of 49,000 shares of stock in the new corporation @ $1 per share or $89,000 total credit, the following:

(a) His equity in the real estate $55,000

(d) Cash difference between the above schedule and the total of Nielson-Perry debts 4,000

(c) Personal property 30,000

Total $89,000

Contained within item (b) next above there is this provision: 'It is understood that the liability due Sher Kahn, in the amount of $23,588.83, may be settled temporarily by the payment of $5,000 in cash and the execution by Mr. Perry of a note for the balance or $18,588.83. In such event, the cash remaining in the hands of the First National Bank of Salt Lake City, to be transferred by Mr. Perry to the new corporation will be increased by $18,588.83 and will be subject to the obligation incurred by Mr. Perry in the same amount of $18,588.83.'

It is conceded that the note sued on by the plaintiff is the note given by defendant Perry after application of the $5,000 cash referred to above.

This agreement also provided that Perry was to be director and general manager of the new corporation.

The articles of incorporation were filed July 22, 1946 and on July 29, 1946 a special Board of Directors meeting was held. The minutes of this meeting disclose that Mr. Perry and Mr. Zolezzi were present and that Director Leonard W. Elton was absent. These are the three directors provided to be such in the pre-incorporation agreement. They show, too, that Mr. Perry had been made president of the defendant corporation. Mr. Perry testified that he had been made general manager of the company, all of which was in accordance with the pre-incorporation agreement. The minutes also disclose selection of the First National Bank of Salt Lake City as depository of corporate funds. This was in accordance with the pre-incorporation agreement. They show approval of a loan of $50,000 to Perry by the corporation, which was also provided in the pre-incorporation agreement. They show approval of the issuance of 49,000 shares of capital stock to Perry at $1 per share and the cancellation of $40,000 of the Perry note to the corporation upon receipt of the same property amounting to $89,000 as set forth in the pre-incorporation agreement. They show approval of the obtaining of a loan in the sum of $80,000 from the First Security National Bank of Salt Lake City and securing the same by a mortgage upon corporate property. This also is in accordance with the pre-incorporation agreement.

Reference is made in the minutes as follows: 'The chairman stated that under and pursuant to the original understanding which had been agreed upon for liquidation of certain outstanding claims of creditors of Nielson & Perry, a partnership, this corporation should lend to said W. R. Perry the sum of $50,000 which loan would be evidenced by the unsecured note of Mr. W. R. Perry payable to the order of this corporation on demand.'

The only 'original understanding which had been agreed upon,' as shown by the evidence was the pre-incorporation agreement, which is itself entitled 'Memorandum of Understanding and Agreement, etc.'...

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1 cases
  • Knox v. First Security Bank of Utah
    • United States
    • U.S. Court of Appeals — Tenth Circuit
    • March 29, 1952
    ...474, 59 P. 399; Tanner v. Sinaloa Land & Fruit Co., 43 Utah 14, 134 P. 586; Murry v. Monter, 90 Utah 105, 60 P.2d 960; Kahn v. Perry Zolezzi, Inc., Utah, 226 P.2d 118. Under the law of Utah, a contract made by and with promoters which is entended to inure to the benefit of a corporation abo......

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